Urgent call for a Fed rate cut as the US economy faces a hard landing; investors remain bullish.

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The foundation of the American economy is shaking as the job market faces a significant downturn. The pillars that have supported the markets over the past year—high employment and robust consumer spending—are now showing signs of vulnerability. This morning’s job numbers confirm the ominous trend, with the number of US job openings experiencing the sharpest decline since March 2021, according to JOLTS data.

Yields on 10-year Treasuries are plummeting, down 80 basis points in less than a month to below 4.2%, the lowest since August. Amidst this economic turmoil, some argue that the Federal Reserve is out of touch with reality, calling for at least five interest rate cuts in 2024 alone to prevent a recession.

Portfolio manager Paul Gambles, co-founder of MBMG Group, warns that the Fed’s policy is disconnected from economic factors and suggests that the central bank needs to recognize the damage it is causing to the economy. Gambles contends that the Fed must act swiftly to avoid an extreme and protracted monetary tightening cycle.

The oil market is also on shaky ground, teetering on the brink of a bear market with a 19% decline since its mid-September peak. While some attribute this to a supply-side story, the broader economic implications are undeniable.

The stock market, once a symbol of economic health, is increasingly being likened to a casino. The introduction of a new 4X leverage S&P 500 ETN is met with caution, and hedge fund crowding in US stocks has reached a record high, with 70% of typical hedge fund positions concentrated in the top 10 stocks. The seven largest tech stocks have surged more than 20 times the S&P 493 in 2023, raising concerns about the market’s stability.

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The housing market, a key indicator of economic well-being, is also sounding alarms. Pending home sales have hit their lowest level in history, with a 1.5% decline in October and a staggering 6.6% drop over the last year. This marks the 23rd consecutive decline in US pending home sales, with the current figures more than 10% below 2010 levels and around 3% below the pandemic low during the global lockdown.

As pending home sales falter, mortgage demand has reached its lowest levels since 1994, signaling a significant slowdown in the housing market. The convergence of these factors paints a bleak picture for the US economy, emphasizing the urgent need for decisive action from the Federal Reserve to prevent a deep and prolonged recession.

 

Sources:

Fed is ‘disconnected’ from reality, must cut rates 5 times next year, portfolio manager says

Job openings slide to 8.7 million in October, well below estimate, to lowest level since March 2021

You will never guess in which direction the September blowout 9.553MM jobs openings were revised

Troubling Signals Ahead of This Friday’s Employment Data Release

‘Is this a stock market, or a casino?’ New 4X leverage S&P 500 ETN met with caution

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